NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exchange Rate Determination with Systematic and Unsystematic Policy Regime Changes: Evidence From the Yen/Dollar Rate

John H. Makin, Raymond D. Sauer

NBER Working Paper No. 1406
Issued in July 1984
NBER Program(s):   ME   ITI   IFM

This paper presents results of estimating an exchange rate equation in light of theoretical considerations regarding changes in sterilization and intervention policy and tax policy which imply that the coefficients in the equation will not behave as fixed parameters in a given sample period,as standard econometric practice assumes. We compare the results of ordinary least squares and a random coefficients model of the Japanese Yen-- U.S. dollar exchange rate during the floating period of July 1973 through June 1982.When systematic end of year policy changes affecting Japanese reserves are explicitly modeled, both OLS and the random coefficients model show increased explanatory power. The random coefficients model appears to be superior to OLS however; by allowing the coefficients to vary over time as required by the economic theory discussed above, estimates of the mean response coefficients for the floating period all have the hypothesized sign, and explanatory power is sharply increased.

download in pdf format
   (225 K)

email paper

This paper is available as PDF (225 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1406

Published: Review of Economics and Statistics, 1986.

Users who downloaded this paper also downloaded these:
Levich, Corrigan, Sanford, Jr., and Votja Financial Innovations in International Financial Markets
Mussa The Theory of Exchange Rate Determination
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us